Market sees Fitch move as part of ‘herd mentality’

MUMBAI: Fitch's decision on Monday to lower India's outlook to 'negative' from 'stable' is unlikely to rattle Dalal Street but it sure will affect the sentiment to some extent.

Since Fitch's decision came within a week of S&P's similar observation, it has prompted brokers and analysts in the market to come to the conclusion that it's a "herd mentality" among global ratings major to go negative on India. The term "herd mentality" was coined by Kaushik Basu, the country's chief economic advisor, soon after the ratings major's decision was made public and the Street has latched on to the term like a tweet gone viral.

Analysts feel that a sovereign ratings downgrade may follow soon, but they agree that there was nothing in the Fitch's analysis of the Indian economy that people in the market did not know. "We are not really alarmed by the decision, because what they said is already known. But this was needed since India needs flak for its lax handling of the economy," said Amar Ambani, head of research, IIFL. "This will have some negative impact on the market's sentiment," Ambani said.

On Monday, Fitch also changed outlook on seven PSUs to negative from stable, but this decision too is unlikely to have much impact on the stocks of these companies for the simple reason that none of the Indian PSUs are big borrowers in the international market, analysts said. Fitch has changed the outlook for REC, PFC, GAIL, IOC, NTPC, NHPC and SAIL.

Earlier in the day, a report from Fitch ratings noted that India's macroeconomic picture had turned unfavourable, and a combination of slower real GDP growth of 6.5% in fiscal 2012 and elevated wholesale price inflation ( WPI) of 8.8% suggested that the economy had "entered an extended period of relative stagflation."

Fitch also revised down its real GDP growth forecasts to 6.5% and 7.0% for fiscal 2013 and fiscal 2014, down from earlier forecasts of 7.5% and 8.0%, respectively.